After you have figured your total estimated tax, figure how much you must pay by the due date of each payment period. You should pay enough by each due date to avoid a penalty for that period. If you do not pay enough during any payment period, you may be charged a penalty even if you are due a refund when you file your tax return. The penalty is discussed in chapter 4.

If your first estimated tax payment is due April 15, 2010, you can figure your required payment for each period by dividing your annual estimated tax due (line 16a of the 2010 Estimated Tax Worksheet) by 4. Enter this amount on line 17. However, use this method only if your income is basically the same throughout the year.

After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods.

If you do not receive your income evenly throughout the year, your required estimated tax payments may not be the same for each period. See Annualized Income Installment Method on this page.

Amended estimated tax. If you refigure your estimated tax during the year, or if your first estimated tax payment is due after April 15, 2010, figure your required payment for each remaining payment period using Worksheet 2-10 on page 43.

Early in 2010, Mira Roberts figures that her estimated tax due is $1,800. She makes estimated tax payments on April 15 and June 15 of $450 each ($1,800 ÷ 4).

On July 10, she sells investment property at a gain. Her refigured estimated tax is $4,100. Her required estimated tax payment for the third payment period is $2,175, as shown in her filled-in Worksheet 2-10 below.

Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment

4.

$2,175

Note.If the payment on line 4 is due January 15, 2011, stop here. Otherwise, go to line 5.

5.

Add lines 3 and 4

5.

3,075

6.

Subtract line 5 from line 1 and enter the result (but not less than zero)

6.

1,025

7.

Each following required payment: If the payment on line 4 is due June 15, 2010, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2010, and January 15, 2011. If the amount on line 4 is due September 15, 2010, enter the full amount on line 6 here and on the payment voucher for your payment due January 15, 2011

If your estimated tax payment for a previous period is less than of your amended estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. See chapter 4 for more information.

If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.

The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. To see whether you can pay less for any period, complete the 2010 Annualized Estimated Tax Worksheet ( Worksheet 2-7) beginning on page 40.

You first must complete the 2010 Estimated Tax Worksheet through line 16b. (See page 33 for a blank worksheet.)

Use the result you figure on line 28 of the 2010 Annualized Estimated Tax Worksheet to make your estimated tax payments and complete your payment vouchers.

See Example 2, beginning on page 28 to see how the worksheet is completed.

Use Figure 2-C, beginning on page 25, to help you follow these instructions. Another worksheet is available for your use on pages 40 and 41.

The purpose of this worksheet is to determine your estimated tax liability as your income accumulates throughout the year, rather than dividing your entire year's estimated tax liability by four as if your income was earned equally throughout the year. The top of the worksheet (see page 25) shows the dates for each payment period. The periods build; that is, each period includes all previous periods. After the end of each payment period, complete the corresponding worksheet column to figure the payment due for that period.

Enter your AGI for the period. This is your gross income for the period, including your share of partnership or S corporation income or loss, minus your adjustments to income for that period. See Expected AGI—Line 1 on page 19.

Generally, you will use the 2010 Tax Rate Schedules on page 34 or in the instructions to Form 1040-ES to figure the tax on your annualized income. However, see below for situations where you must use a different method to compute your estimated tax.

Generally, the maximum tax rate for qualified dividends is 15% (0% for people whose other income is taxed at the 10% or 15% rate).

Tax on capital gain and qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-8 on page 42 to figure the amount to enter on line 12.

Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555 or Form 2555-EZ, use Worksheet 2-9 on page 43 to figure the amount to enter on line 12.

If you file Form 1040, add the tax from Forms 8814, 4972, and 6251 for the period. If you file Form 1040A, add the amount from the Alternative Minimum Tax Worksheet found in the instructions. Also include any recapture of an education credit for each period. You may owe this tax if you claimed an education credit in an earlier year and you received either tax-free educational assistance or a refund of qualifying expenses for the same student after filing your 2009 return.

Use the 2009 forms or worksheets to see if you will owe any of the taxes discussed above. Figure the tax based on your income and deductions during the period shown in the column headings. Multiply this amount by the annualization amounts shown for each column on line 2 of the 2010 Annualized Estimated Tax Worksheet (Worksheet 2-7). Enter the result on line 13 of this worksheet.

Include all the nonrefundable credits you expect to claim because of events that will occur during the period. If you are using your 2009 return as a guide and filed Form 1040, your 2009 credits were entered on lines 47 through 53. If you filed Form 1040A, your credits were on lines 29 through 33.

Note. When figuring your credits for each period, annualize any item of income or deduction to figure each credit. For example, if you need to use your AGI to figure a credit, use line 3 of Worksheet 2-7 to figure the credit for each column.

You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or

You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax.

Amounts on Form 1040 written in on the line for "total tax" (line 60 on the 2009 Form 1040). But do not include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; uncollected social security, Medicare, or RRTA tax on tips or group-term life insurance; or recapture of COBRA health insurance premium assistance.

Repayment of the first-time homebuyer credit if the home will cease to be your main home in 2010. See Form 5405 for exceptions.

Include all the refundable credits (other than withholding credits) you can claim because of events that occurred during the period. If you are using your 2009 return as a guide and filed Form 1040, your 2009 refundable credits include lines 63 (making work pay credit only), 64a, 65, 66, 67, and 70 (boxes b, c, and d). If you filed Form 1040A, include the credits on lines 40 (making work pay credit only), 41a, 42, and 43. If you filed Form 1040EZ, include lines 8 and 9a.

Note. When figuring your refundable credits for each period, annualize any item of income or deduction used to figure each credit.

For each period, include estimated tax payments made and any excess social security and railroad retirement tax.

Also include estimated federal income tax withholding. One-fourth of your estimated withholding is considered withheld on the due date of each payment period. To figure the amount to include on line 31 for each period, multiply your total expected withholding for 2010 by:

25% (.25) for the first period,

50% (.50) for the second period,

75% (.75) for the third period, and

100% (1.00) for the fourth period.

However, you may choose to include your withholding according to the actual dates on which the amounts will be withheld. For each period, include withholding made from the beginning of the period up to and including the payment due date. You can make this choice separately for the taxes withheld from your wages and all other withholding. For an explanation of what to include in withholding, see Total Estimated Tax Payments Needed—Line 16a beginning on page 22.

Figure 2-C. Annualized Income Installment Method

Section A (For Figuring Your Annualized Estimated Tax Payments)—Complete each column after end of period shown.

Estates and trusts: Use the following ending dates in columns (a) through (d): 2/28/2010, 4/30/2010, 7/31/2010, 11/30/2010.

(a)1/1/10-3/31/10

(b)1/1/10-5/31/10

(c)1/1/10-8/31/10

(d)1/1/10-12/31/10

1

Adjusted gross income (AGI) for each period (see instructions). Estates and trusts, enter your taxable income without your exemption for each period. Self-employed: Complete Section B first

1

2

Annualization amounts. (Estates and trusts, see instructions)

2

4

2.4

1.5

1

3

Annualized income. Multiply line 1 by line 2

3

4

If you itemize, enter itemized deductions for period shown in the column headings (see instructions). All others, enter -0- and skip to line 7. Exception: Estates and trusts, skip to line 9 and enter amount fromline 3

4

5

Annualization amounts

5

4

2.4

1.5

1

6

Multiply line 4 by line 5 (see instructions)

6

7

Standard deduction from Worksheet 2-3

7

8

Enter the larger of line 6 or line 7

8

9

Subtract line 8 from line 3

9

10

In each column, multiply $3,650 by your total expected number of exemptions (see instructions). (Estates and trusts, see instructions)

10

11

Subtract line 10 from line 9. If zero or less, enter -0-

11

12

Figure your tax on the amount on line 11 (see instructions)

12

13

For each period, enter any tax from Forms 8814, 4972, and 6251 (or the Alternative Minimum Tax Worksheet in the Form 1040A instructions). Also include any recapture of education credits (see instructions)

13

14

Add lines 12 and 13

14

15

Enter nonrefundable credits for each period (see instructions)

15

16

Subtract line 15 from line 14

16

17

Self-employment tax from line 41 of Section B

17

18

Enter other taxes for each period (see instructions)

18

19

Total tax. Add lines 16, 17, and 18

19

20

Enter refundable credits for each period (see instructions for type of credits allowed). Do not include any income tax withholding on this line

20

21

Subtract line 20 from line 19. If zero or less, enter -0-

21

22

Applicable percentage

22

22.5%

45%

67.5%

90%

23

Multiply line 21 by line 22

23

Complete lines 24 through 29 of one column before going to line 24 of the next column.

24

Enter the total of the amounts in all previous columns of line 29

24

25

Annualized income installment. Subtract line 24 from line 23. If zero or less, enter -0-

25

26

Enter 25% (.25) of line 14c of the Form 1040-ES Estimated Tax Worksheet in each column

26

27

Subtract line 29 of the previous column from line 28 of that column

27

28

Add lines 26 and 27

28

29

Enter the smaller of line 25 or line 28 (see instructions)

29

30

Total required payments for the period. Add lines 24 and 29

30

31

Estimated tax payments made (line 32 of all previous columns) plus tax withholding through the due date for the period (see instructions)

31

32

Estimated tax payment required by the next due date. Subtract line 31 from line 30 and enter the result (but not less than zero) here and on your payment voucher